9781118041581

(say, $35). At this higher price, the amount of shoes firms supply would

greatly exceed the amount consumers would purchase. Given the surplus of

supply relative to demand, producers would be forced to reduce their prices

to sell their output. Price reductions would occur until equilibrium was

restored at the $25 price. Similarly, if the price were temporarily lower than

$25, consumer demand would outstrip the quantity supplied. The result

would be upward pressure on price until the equilibrium price was restored.

If we augment the demand and supply graph with quantitative estimates

of the curves, we can pinpoint equilibrium price and quantity more pre-

cisely. Suppose the market demand curve in Figure 7.1 is described by the

equation

QD 13 .2P,

286 Chapter 7 Perfect Competition

FIGURE 7.1

Supply and Demand

The intersection of

supply and demand

determines the

equilibrium price

($25) and quantity

(8,000 pairs).

0

5

2

Pairs of Shoes (Thousands)

Price

10

15

20

25

30

35

40

$45

468101214

D

S

E

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